The Tax Benefits of Leasing vs Buying a Car

Understand your options

If you’re weighing up your options between leasing or buying a car, it can be a tough decision to make. There are pros and cons to both leasing and buying a car, so it may be that the best option will depend on your personal circumstances.

Remember if you are claiming tax benefits for a business car, you have to be able to prove that the vehicle is being used for business purposes at least 50 per cent of the time.

Ask for expert help to understand the tax benefits of leasing vs buying vs a car. Positive Lending Solutions can discuss whether a novated lease could be a good solution for you, or whether you’d be better off buying a car to own yourself.

Get expert advice for your situation from one of our car finance sherpas to see how we can help you with your next car loan.

Leasing vs buying a car – what are the differences?

If you decide to buy a car, you’ll generally get a car loan for a specific amount which must be paid back in regular instalments over an agreed loan term. You are required to pay back the full loan amount, even if the car goes below the value of the loan.

Leasing a car means that you will simply be borrowing the car from the financial lender who ultimately takes responsibility for the loan. A novated lease is a three-way agreement between you, your employer, and a financial lender. The residual value at the end of the lease can lower the lease cost, and you may have more options at the end of the lease term.

What are the tax benefits of a novated lease?

If you decide to go with a novated lease, you will usually make payments from your pre-tax salary which will reduce your taxable income, meaning more money in your net pay.

By leasing a car, you won’t have to worry about repairs or wear and tear on the vehicle as you will generally have the option to return it or trade it in for a newer model. If you do need to maintain your car, you can pay for this from your pre-tax income as well.

Not only that, if you do need to maintain your car, a novated lease allows you to pay for your car and associated running costs such as petrol and maintenance from your pre-tax salary. This is managed by your employer and reduces your taxable income.

Why would you consider buying a car?

For many people, owning a car is something that’s important to them, and this can often be the sole reason why some people consider buying a car rather than leasing one.

Taxwise, if you decide to purchase a vehicle rather than leasing it, you’ll generally expect to pay tax on the vehicle upfront. This means that you can put all the GST on the first statement you have after purchasing the vehicle.

You’ll also want to consider the tax deduction you can get through depreciation. If you own your vehicle, you can deduct a depreciation value over the life of the vehicle – this is not the case with a leased vehicle.

Making a choice – it's up to you

It can be difficult to decide which is best for you when considering the tax benefits of leasing vs buying a car. Speak to us to get expert advice – we have years of experience working with people to find them the best car loan, and we can help you to figure out which is the best option for you.

You might want to consider things like how often you’ll be using the car, what you may want to do with the car when it’s time to upgrade, and what your current cash flow situation is.

Find out how we can help you get the most tax benefit out of your car loan or novated lease.